The Market Finally Questions Justifiability of High Stock Prices

Last week saw a subtle but important shift in the way economic data were interpreted. During most of the rally, any improvement in data was heralded as proof that the worst was behind us and the future a ramp upwards with only the degree of incline in question. Merely an upward bias in economic data was enough to give stocks an upward bias as well. Last week, however, more attention was paid to the strength of the data instead of its direction alone. Finally, the market may be asking if the recovery is good enough to justify high stock prices. Over the past two weeks the answer has been, "No."

What could follow on the heels of such a shift is a further backing up from debating the incline of recovery to questioning whether an upward bias is guaranteed after all. With loan defaults rising, jobs about as common as sense in Congress, and central banks eager to pare back stimulus, more people appear to be wondering if another leg down is inevitable.

Let's look at the technical picture for the main stock indexes of the world's four financial centers: the S&P 500 in New York, the Nikkei 225 in Tokyo, the SSE Composite in Shanghai, and the FTSE 100 in London.

Here's New York:


Here's Tokyo:


Here's Shanghai:


Here's London:

Comments

[bbro:]

Love it....please sell off...would love to buy at lower levels.....

Oct 05 05:37 AM

[bbro:]

S&P 500 to GDP at 7.24%...Historical Median in a low inflation
environment at 9.4%...

Oct 05 05:40 AM

[Michael Clark:]

I'm saying we've topped based on (1) Ultrashorts making bottoms after a LONG period of steady decline; and (2) support breakdown in a good number of stocks that we follow.

I've run a 4-part article showing both of these phenomenon:

seekingalpha.com/insta...

Oct 05 07:42 AM

[AndrewBaker:]

Well at last the message is getting through that stock prices have been and currently are at far too high levels as justified by the fundamentals. The charts have been topping and starting to roll over for a while, and they won't be able to stay up much longer, giving way to a steep decline that will make a lot of bulls, especially the late-comers, feel not only vertiginous but pretty sick too!

But a reversal now is better than one later at higher levels that will hurt so much more.

Oct 05 08:49 AM

[tripleblack:]

I see the 50 day MA as in the driver's seat for now, until we see a chart similar to Japan's (which I suspect will happen soon, but I hope not).

Oct 05 08:50 AM

[Paul Harper:]

how I would love to believe this ... but the beast is still being fed with upgrades galore . RIM, Brocade, Wells Fargo, Barclays ... & on it goes.

it's earnings season after all, time for the retail investor to get sharked again.

Oct 05 09:27 AM

[gabe borens...:]

The stock market is a leading economic indicator.As such it reflects an economic status quo in the period ahead.
The correction in the past two weeks is a constructive phenomenon and reflection of a market consolidation.
Recent data was misinterpreted but not negative.
True ,the unemployment continues ti rise but it is a lagging indicator reflective of the economic past.
Auto sales have declined but not as severly as the inititial expectations reflected by the auto industry in August.
Under the pressure from some who continue to focus on gold and commodities in general, preaching inflation;the Congress and the FED reflected much too early about neutralizing some of the stimulus- a mistake.
Then again the timing of that action was not specified.
On the other hand the fiscal and the monetary policies in place will continue to assist economic expansion.
Decimation of savings and decline in the asset values in 2008 ,eliminates the risks of excess demand(in this cyclical recovery) which normally would lead to inflationary pressures.
Only in March of this year some form of an economic implosion was a consensus.
We came a long way .Unprecedented cyclical ,non inflationary expansion will continue.
What happened to all the bears at the end of 2007 when the real risks had emerged? .I had issued several warnings then.
Another decompression ? a wishful death wish that will not happen .

Oct 05 09:43 AM

[robert.b.fe...:]

How long can unemployment be looked at as a lagging indicator? When we see the numbers adjusted up every month after the fact the BLS seems to be specializing in BS. This market is no longer cheap. I'm still hunkered down awaiting the final out comes of cap and trade, health care deform and new regulations. Perhaps when the picture is clearer figuring out which positions to hedege and which to hold will become easier. Until then keep your traveling stops tight and your stash of cash in gold.

Oct 05 12:15 PM

[Stone Fox C...:]

the market is usually wrong. As long as people question high stock prices, they'll always be too cheap.

Oct 05 04:39 PM

[Ellinas:]

Onwards it goes with short logical stops plus things are calm presently..So that's what's happening..

Oct 05 09:28 PM